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Payday loans have long been associated with bad credit primarily because they have successfully earned the reputation of lenders not being thorough enough in checking background credit histories of people they are providing loans to. This has been because they were meant to be loans provided for emergency purposes and needed to be as easily accessible as possible. Over the past few years, they have been nicknamed “bad credit payday loans”. When one was applying for a payday loan, there was a substantial amount of risk involved in taking up these loans, as they, till very recently, faced very little pro-active regulation on their functioning. This meant that the lenders were given the freedom to set their own rates (including application fees, charges and late payment fees) and terms and provided that they adhered to the Consumer Credit Act and any wrongdoings were not bought to the then regulator's attention, they could lend money; it led to a disaster for the people of many countries such as the US and the UK.

These lenders originated from the US and when the government cracked down on them with imposing regulations, they decided to enter into more lucrative markets such as the UK, which has already seen the rise of many major players such as Wonga, Lending Stream, Quick Quid to name a few. These lenders have reported phenomenal growth in a span of a few years and have doubled their profits and their staff in 2 years, owing to the exponential increase in their demand. This is mainly attributable to the population for these types of loans only increasing in the recent years. This is because there is no mainstream line of credit which is readily available for these segments of people. This population is the population that is finding it difficult to pay their bills, has very limited incomes at their disposal and at the same time, are being wooed by the misleading advertising that these lenders have previously indulged in.

Even though there has always been strictly advertising guidance, this has not always been fully embraced and in some cases they have targeted teenagers with no stable incomes, single income parents who anyway find it difficult to pay their bills. Moreover, there was a view amongst the authorities that these lenders have added to the financial instability instead of bringing a more stable financial situation for people. Assessing creditworthiness in Bad credit payday loans is only one part of the story. The second, and probably more important element is the assessment of affordability. Historically, it has been a lack of proper assessment in this area that has led to the problems. It may be that a customer has every intention of repaying the loan, as they always have done, and really wants to do so, but if they simply cannot afford to do so, then this is meaningless.

Others say that the stipulated period of time in which one is supposed to repay these loans, which for a single installment loan is usually in the period of 30 days is just not affordable for many borrowers. Secondly, the Annual Percentage Rate that these loans carried is so steep that many borrowers have in the past simply extended the loan over and over and spent months just paying back the interest on these loans. This has turned disastrous for many of the borrowers using these types of services. However, there are people who have not been so critical of these loans and have publicly supported the need for such loans to exist. What was needed was a more regulated industry so that those that wanted to 'do it right' would stay and thrive and those that did not want to would be forced out. This was what happened when the Financial Conduct Authority took over regulation in April 2014.

Financial Conduct Authority has gone ahead with the regulations which have seen many players bowing out of the industry. All of the remaining players have gone through major changes to their product and processes. These include honchos like Wonga which already occupied about 70% of the market share so they have agreed to all the mandates imposed by the FCA which include an interest rate cap, limiting the overall cost of the loan and the default charges, limiting the number of times one can roll over a loan to 2 amongst other mandates.

Credit checking and affordability, while in the regulations for many years are now buzz words within the industry. Yes loans still exist for those with bad credit, but these are no means a certainty for the borrower. Many lenders that offer loans for bad credit are simply suggesting that certain elements of poor credit history will be treated as less important compared with current credit performance and affordability. It is unlikely that if you have had, and still have, bad credit that you will be accepted for a loan.

This was needed as these loans were functioning on free will. However, there needs to be a constant check on these lenders to ensure that these standards are maintained. Customers are being provided with much more information in a much clearer way than before so they can understand the product, its costs and their obligations. This is education that needs to be imparted at the most fundamental level, so that people can understand the need for alternative lines of credit.

Conclusion:

In conclusion the FCA taking over regulations of the Payday Loan industry is good news all round. For the borrowers it gives a highly regulated industry where they can be confident that regulated lenders will be doing right by them and operating in accordance with the current regulations. For the lenders it means that they can all operate from the same level playing field where 'doing it right' will not leave them at a financial disadvantage over those competitors that are not.